Mahindra First Choice Services is leveraging the franchise model to grow big and fast. It plans to have 1200 franchises across the country and generate revenue of Rs 1000 crore by 2020. Now it has 130 franchises and Rs 60- crore turnover.About 270 service centres are under various stages of construction and the company will have 400 franchises by the end of this financial year.
Mahindra First Choice Services wants to become the country’s third largest car service provider by 2017-18. The first two are the multi-brand servicing chains, My TVS, and Carnation Auto.The three companies have been in the business for quite some time. None of them are profitable yet.
In car service business, the authorised OE service dealers have the advantages of captive customers, smooth supply of spare parts at higher margins, and technical and business support from OEMs. The independent garages have to fend for themselves and keep their service charges low to get price-conscious customers.
“Multi brand service chains have to offer what OE dealers and independent garages offer. We need to have the same kind of infrastructure as the OE dealers making higher investments. For us spare parts are not easily available and we have to procure them from various sources. Technical training is an additional cost for us. We have to keep our labour rates below the OE dealers to be competitiveand spend on marketing. All these together squeeze our margins,” YVS Vijay Kumar, CEO, Mahindra First Choice Services, told AutoParts Asia.
In the developed countries, multi-brand servicing business is successful. It is on the same level in market share as the OE dealers and independent garages.
Want Of Scale
According to Vijay Kumar, the absence of scale prevents the multi-brand service providers from having a profitable bottomline. “When scale increases, operation cost comes down and the availability of spare parts becomes easy. Vendors and suppliers come to your door step to supply spare parts. Margins get wider and support system to workshops also improves. With large network and scale, brand promotional activities can also be pursued vigorously. It is a win-win situation. So the key is how to grow fast and big. That is where the multi-brand service chain business has failed so far. But I am glad to say that we are growing very fast.”
Mahindra started the car service business in 2008 with company-owned company operated (COCO) workshops. In the next three to four years, the company managed to have only 20 COCO workshops. Mahindra First Choice Services took to the franchise route in a big way to have more market share and customers. “We realised that we would expand only through franchises. We were also clear that unless we had a strong proposition for franchisees, they would not serve our purpose,” Vijay Kumar said.
Mahindra First Choice Services decided to make the four pillars- brand, processes, training and spare parts- stronger to expand the franchise system. Being part of the Mahindra Group, branding has not been an issue. For the other three pillars, the company had to redefine its business model.
Attracting prospective franchisees to a yet-to-be-profitable business and infusing confidence in them, most of them from non-auto background, was a big challenge to the company. “We had to develop strong processes to make franchises profitable in a short time. We had to have a set of standards of processes to train the franchisees and their employees. Since the multi-brand chains make lower margins than the OE dealers, we had to focus on cost efficiency and fine-tune the process manuals. We also developed soft skills and implemented SAP. These will ensure that the customers will not feel any difference when they visit a workshop, COCO or FOFO,” Vijay Kumar said.
One will have to invest Rs 60 lakh to Rs1 crore, depending on the location, to set up a franchise. This excludes land cost. According to Vijay Kumar,if 150 to 200 units are serviced a month, on an average, the franchisee can start making profit within a year. “Investment recoupment will happen after two and a half years. However, we are seeing people making cash profits within six months,” he said.
Mahindra First Choice Services has established two technical training centres in Bangalore and Noida and has prepared technical training manuals. Availability of branded spare parts at competitive rate is the biggest challenge for independent garages and multi-brand auto service providers.
“The fourth pillar, the smooth supply of spare parts, I would say, has been neglected by our competitors and it is where we are investing heavily. We have taken various consultants and made several experiments and have come to a model which is unconventional and different from the practiced of the OE dealers. The dealers keep spare parts inventory of three to six months. Since in a multi-brand scenario, we have to have inventories for all brands,we decided to go for a spare parts inventory of around 15 days. This reduces capital investment. The biggest question is how to practice it,” Vijay Kumar said.
Mahindra First Choice Services has divided the country into 40 clusters and each cluster has a warehouse. A`cluster warehouse’is the central point for workshops within 250 km. The fast moving spares are replenished regularly through local transporters and low-cost logistic companies.
“The supply of the fast-moving spare parts is not based on any forecast. As the stocks move, they will be filled up. The items not covered under this system are ordered from hubs that have various sources of supplies: Manufacturers,dealers and retailers. We keep all the resources alive and calculate the lead time for them. Based on the lead time, we keep our inventory,” Vijay Kumar said.
Mahindra First Choice Service is not only pulling up socks against OE dealers but also against independent garages, which probably enjoy the largest share in the car service industry. As the car gets older, the manufacturer’s warranty gets over and the frequency and the cost of services increase.
“Customers would not mind shifting to a multi-brand service chain if the infrastructure and service quality is the same as the OE dealers and the cost is competitive. This is what we have experienced. Most of our customers come in this transition mode. Once he goes to an independent garage and gets used to a low-cost service, it is very difficult to get him. Still a few customers from independent garages also come to us. We run a marketing campaign, `Free ke Baad First Choice’,” the CEO said.
Last year, the company ran a 360 degree campaign. Its customer retention rate is between 50 percent and 60 percent and the customer satisfaction index is between 80 percent and 90 percent. “We ask even the 10 percent who are not satisfied to revisit. On labour charge and spare parts, we are 15 percent cheaper than the OE dealers”, he said.
Label Of MFC
Mahindra First Choice Service has also entered into a private labelling business, called MFC, for fast moving auto components such as filters, brake pads, wiper blades, coolant, shockabsorbers, coilsand a few others. MFC’s products are sourced from various manufacturers under stringent quality conditions and they are supplied to the company’s own franchises and to the open market.
“Our study again found that distributors will have to stock a heavy inventory of three to six months and give credits in the market requiring huge working capital. There is always the risk of dead stocks and credit defaults. Instead of pushing things in the market we decided to create pull in the market. We ask distributors to keep very minimum inventory and offer less credit. For the mechanics, we are running a simple scheme with fixed rewards and no targets. With every sale of our products, certain points will be credited to their account and this is attracting them. The same thing we do with the retailers also. Since we are bringing in new products in the market, we ask all the three – distributors, retailers and mechanics – to keep them in their shelves and if they are not sold, we take them back. In this way, we evaluate our product sales also,” Vijay Kumar said.
Mahindra First Choice Services is planning to launch an app for its customers to have a complete history of product purchase and servicing contracts, and technical knowledge. It also plans to service high-end cars later as the infrastructure, technicians and spare parts are different.
“We also plan to start a portal, called CARWORKZ, on which all workshops ranging from independent garages to OE dealers and multi-brand service chains will be listed. One can visit the website, and can get estimated cost of servicing and spare parts,” Vijay Kumar said.